The Foundations of a Market Economy: Contract, Consent, Coercion
European View, Vol. 9, No. 1, pp. 29-37, June 2009
9 Pages Posted: 30 Dec 2009 Last revised: 15 Jul 2012
Date Written: May 26, 2009
This article shows how contracts are the institutional foundation of a market economy. Contracts create wealth, allocate risk and are based on consent. There is no perfect competition and the markets are characterized by a number of failures; therefore, contracts are not perfect. However, the existence of these failures does not undermine the importance of contract and consent. A common critique of the market economy is that most transactions are based on some form of coercion. The authors try to address this misconception by showing that a contract is the result of coercion not in cases where a choice is hard for a party but when it offers a choice the party does not want to have.
Keywords: Contract, Consent, Coercion, Market economy, Market failures, Rationality, Perfect competition, Uncertainty
JEL Classification: B40, D02, D63, D81, D86, K12
Suggested Citation: Suggested Citation